Updated on February 4th, 2022 by Felix Martinez
When it comes to dividend investing, the Dividend Aristocrats are the “cream of the crop.”
The Dividend Aristocrats are a group of stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases.
There are just 66 companies that have attained Dividend Aristocrat status.
As a result, it is not easy to join the Dividend Aristocrats list. With that in mind, we created a downloadable list of all 66 Dividend Aristocrats, along with important metrics like dividend yields and price-to-earnings ratios.
You can download a free copy of the Dividend Aristocrats list by clicking on the link below:
There are thousands of dividend stocks to choose from, but the Dividend Aristocrats are a unique group. The Dividend Aristocrats have profitable businesses, and the ability to grow their profits over time. This allows them to withstand recessions, and continue increasing their dividends each year.
Franklin Resources (BEN) has increased its dividend for 42 consecutive years, and the stock has a high dividend yield of 3.8%.
Franklin Resources has endured a few tough years. Still, given the company’s track record of dividend growth and current yield, Franklin Resources is an attractive stock for income investors.
Business Overview
Franklin Resources is an investment management company. It was founded in 1947 in New York, by Rupert H. Johnson Sr., who had previously managed a Wall Street brokerage firm. He named the company after Benjamin Franklin, the founding father who was viewed as a symbol for frugality, saving, and wise investments.
Today, Franklin Resources manages the Franklin and Templeton families of mutual funds. The company ended 2021 with assets under management of $1.58 trillion. It has diversified AUM and a strong performance track record.
Source: Investor Presentation
The past few years have been difficult for Franklin Resources. Franklin Resources was slow to adapt to the changing environment in the asset management industry. The explosive growth in exchange-traded funds and indexing investing caught traditional mutual funds by surprise.
ETFs have become very popular with investors due in large part to their lower fees than traditional mutual funds. In response, the asset management industry has had to cut fees and commissions or risk losing client assets.
Franklin Resources also struggled last year due to the broad deterioration in the global economy caused by the coronavirus pandemic. Fortunately, things are finally looking up in the new fiscal year.
Growth Prospects
Despite the difficult operating environment, there are reasons to be optimistic about the company’s long-term growth. First, the U.S. is an aging population. There are thousands of Baby Boomers retiring every day. Combined with rising life expectancy, there is a great need for investment planning for those in or nearing retirement.
Franklin Resources is attempting to remedy its issues, mainly with acquisitions. Last year, the company acquired Lexington Partners for $1.75 billion. The deal created an additional $34 billion in AUM.
Source: Lexington Investor Presentation
The Lexington acquisition has helped Franklin Resources to continue to grow. On February 1st, 2022 Franklin Resources reported results for the first quarter of fiscal 2022. Total assets under management equaled $1.578 trillion, a 3% increase from last quarter, driven by $10.4 billion in market gains, partially offset by $5.8 billion of cash management outflows.
For the quarter, operating revenue totaled $2.223 billion. This is a 2% increase compared to the last quarter and an 11% increase compared to the first quarter of 2021. On an adjusted basis, net income equaled $553.6 million or $1.08 per share compared to $373.4 million or $0.73 per share in the same quarter last year.
We feel investors can reasonably expect 4% annual earnings-per-share growth over the next five years. Earnings-per-share growth will be driven by revenue growth, mainly due to rising AUM, as well as a boost from share repurchases.
Competitive Advantages & Recession Performance
Asset management is a highly competitive business, and there are not many competitive advantages in the financial services industry. The ability to retain clients depends largely on performance. If funds perform worse than their benchmarks, clients typically withdraw their funds.
However, Franklin Resources has a few advantages going for it. The first, and perhaps most important, is brand recognition. Franklin Resources has been in operation for over 70 years. That indicates a certain developed expertise and some innate investment abilities. Franklin Resources also still has huge assets under management, allowing the company to offer a wide range of investment opportunities to clients and generate some economies of scale.
Counterbalancing these advantages, Franklin Resources’ most recent recession performance was poor:
- 2007 earnings-per-share of $2.37
- 2008 earnings-per-share of $2.24 (5.5% decline)
- 2009 earnings-per-share of $1.30 (42% decline)
- 2010 earnings-per-share of $2.12 (63% increase)
As you can see, earnings-per-share fell steeply in 2009 during the worst part of the Great Recession. This should come as no surprise since investing is hardly recession-resistant. During recessions, stock markets typically decline. For asset managers, this can lower assets under management and fees. That said, Franklin Resources recovered quickly, and saw earnings jump in 2010 and thereafter.
While the company entered another downturn in fiscal 2020 due to the coronavirus pandemic, the company remained profitable, which allowed it to continue raising its dividend. It is also in a position to return to growth in the current fiscal year, assuming a continued economic recovery.
Valuation & Expected Returns
We expect that Franklin Resources will earn $3.50 per share in the fiscal year 2022. The stock has a price-to-earnings ratio of 8.9. This is slightly below our fair value P/E estimate of 10. An increasing valuation multiple could increase annual returns by 1.9% per year.
Earnings-per-share growth and dividends will generate positive returns for shareholders. Franklin Resources has an attractive dividend yield of 3.8%, and the dividend payout appears to be secure. A breakdown of potential returns is as follows:
- 4.0% earnings-per-share growth
- 3.8% dividend yield
- 1.9% valuation tailwind
If Franklin Resources can return to growth investors buying the stock now could see annual returns of 9.7% over the next five years.
Final Thoughts
Franklin Resources’ future growth depends on a strong economy, rising stock prices, and increasing assets under management. The acquisition of Lexington Partners is a good growth catalyst moving forward.
With a strong 3.8% dividend yield and a positive growth outlook, Franklin Resources could be attractive for income investors.
However, given that expected annual returns are below 10%, investors interested in the stock are encouraged to wait for a pullback or an improvement in fundamentals before buying Franklin Resources. As such, the stock receives a hold recommendation.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.